UK CPI comes in hot and remains in double digits, ECB talks tough on inflation

EU Mid-Market Update: UK CPI comes in hot and remains in double digits; ECB talks tough on inflation; awaiting FOMC decision.

Notes/Observations

- UK CPI comes in hotter than expected for both headline and core readings; Markets expect the BOE would have to be more aggressive in raising interest rates.

- Upcoming FOMC rate decision at 14:00 ET (18:00 GMT), markets have priced in 88% chance for 25bps and 12% for a pause. Attention on dot plots and path ahead, following the sudden financial stability issues in the banking sector (SIVB, SBNY, FRC, CSGN.CH etc) during the last week. Debate will be on whether Fed continues tightening to ensure inflation lowers (especially if they incorporate other G7 economies in the equation such as UK CPI coming in hot earlier) or whether Fed pivots to a pause to ease banking stress? Large volatility expected during the announcement.

- South Africa Feb CPI also above consensus and higher from month ago levels.

- Iceland hikes by 100bps to combat inflation.

- Asia closed higher with Nikkei225 outperforming at +1.9%. EU indices are mixed with FTSE100 lagging at -0.1%. US futures are -0.1% to -0.2%. Gold +0.3%, DXY -0.3%; Commodity: Brent -0.2%, WTI -0.3%, TTF -2.1%; Crypto: BTC +0.7%, ETH +2.4%.

Asia

- Japan Chief Cabinet Secretary Matsuno stated that the govt to allocate more than ¥2.0T from reserves to cushion blow to economy from rising prices.

- Japan Econ Min Goto stated that the ¥2T reserve spending to fund price increases and Covid measures.

- US and South Korea said to be planning to hold "largest ever" live fire drills in June; Drills said to involve mobilizing high-tech military equipment.

Americas

- First Republic Bank [FRC] said to hire Lazard to help with review of strategic options. Reports circulated that government could play a role in lifting assets out of First Republic that have eroded its balance sheet.

Energy

- Weekly API Crude Oil Inventories: +3.3M v +1.2M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.12% at 445.96, FTSE -0.20% at 7,521.09, DAX +0.19% at 15,224.75, CAC-40 -0.07% at 7,107.58, IBEX-35 +0.27% at 9,073.52, FTSE MIB -0.04% at 26,545.00, SMI -0.10% at 10,781.30, S&P 500 Futures -0.17%].

Market focal points/key themes: European indices open generally lower, but later traded mixed through the early part of the session; better performing sectors include financials and consumer discretionary; underperforming sectors include real estate and telecom; Credit Agricole sings JV with Stellantis on ALD and LeasePlan’s activities in Europe; focus on upcoming FOMC rate decision later in the day; earnings expected in the upcoming US session include Winnebago and KB Home.

Equities

- Consumer discretionary: Adidas [ADS.DE] +1.0%, Puma [PUM.DE] -1.0% (Nike earnings and outlook), Marks & Spencer [MKS.UK] +3.5% (analyst action - raised at Exane BNP/CitiGroup/Goldman Sachs), Colruyt [COLR.BE] +14.0% (divestment), Zalando [ZAL.DE] +1.0% (analyst action - raised to outperform at Exane BNP).

- Consumer staples: Fevertree [FEVR.UK] +6.5% (FY22 results - light top line, affirms guidance).

- Energy: TotalEnergies [TTE.FR] +1.0% (announced plans to cut emissions).

- Financials: UBS [UBSG.CH] +0.5% (offers to buy some bail-in notes post Credit Suisse deal), Credit Agricole [ACA.FR] +1.0% (acquisition).

- Healthcare: Novartis [NOVN.CH] -1.% (scrapped UK trial plans).

- Industrials: Stellantis [STLA.NL] +0.5% (acquisition).

- Technology: Prosus [PRX.NL] +1.0% (Tencent results), Ubisoft [UBI.FR] +3.5% (analyst upgrade).

- Real Estate: Vonovia [VNA.DE] -4.0% (analyst action - cut to underweight at Morgan Stanley).

Speakers

- ECB Chief Lagarde stated that she did not see clear evidence that underlying inflation was trending downwards; No tradeoff between price and financial stability. Reiterated need to bring inflation down to target and it policy was guided by inflation outlook and transmission; Not committed to any hikes or pauses yet.

- ECB's Nagel (Germany) stated that the fight against inflation was not over; There was still some way to go on rates but were approaching restrictive territory. Stressed that once the ECB stopped raising rates it would then have to resist calls to cut them.

- ECB's Lane (Ireland, chief economist): Reasons to believe that underlying inflation will ease over time. Fall in inflation predicated to wage growth peaking in 2023.

- Iceland Central Bank Policy Statement noted inflationary pressures were still growing and becoming more widespread. Important to avoid a wage-price spiral. Long-term inflationary expectations remained well above target.

- German Council of Economic Advisors updated its outlook and noted that the financial market stability was not under threat but make the ECB's job harder. Saw 2023 inflation at 6.6% and 2024 inflation at 3.0%. It saw 2023 GDP growth at 0.2% and 2024 GDP growth at 1.3%.

- Japan Cabinet Office (Govt) Mar Monthly Report maintained its overall economic assessment. Reiterated that domestic economy was recovering modestly but some weakness was seen recently.

- China Foreign Ministry spokesperson Wang Wenbin Have complained to US over latest chip restrictions; US is carrying out Sci-Tech blockage of China.

Currencies/fixed income

- USD on soft footing at 1-month lows with focus on the FOMC rate decision later today. Markets have pared back expectations for a hawkish Federal Reserve decision and see a 25bps due to the recent banking sector turmoil. Overall the participants will gauge whether the Fed would stick to its hawkish path to fight sticky inflation or pause interest rate hikes given recent trouble among the banking sector.

- GBP/USD was higher after UK CPI registered its 1st acceleration in 4 months. Pair tested 1.2285 as Feb CPI stayed in double digits. BOE is expected to hike by 25bps on Thursday. The terminal rate now seen at 4.60% by Aug.

- EUR/USD at 1.0790 as ECB members continue to stress that inflation was too high and needed to continue with tightening.

Economic data

- (NL) Netherlands Mar Consumer Confidence: -39 v -44 prior.

- (JP) Japan Feb Final Machine Tool Orders Y/Y: -10.7% v -10.7% prelim.

- (UK) Feb CPI M/M: 1.1% v +0.6%e; Y/Y: 10.4% v 9.9%e; CPI Core Y/Y: 6.2% v 5.7%e; CPIH Y/Y: 9.2% v 8.7%e.

- (UK) Feb RPI M/M: 1.2% v 0.6%e; Y/Y: 13.8% v 13.2%e; RPI-X (ex-mortgage Interest Payments) Y/Y: 12.9% v 12.5%e; Retail Price Index: 364.5 v 362.5e.

- (UK) Feb PPI Input M/M: -0.1% v -0.2%e; Y/Y: 12.7% v 12.0%e.

- (UK) Feb PPI Output M/M: -0.3% v +0.1%e; Y/Y: 12.1% v 12.4%e.

- (ZA) South Africa Jan Leading Indicator:120.8 v 121.0prior.

- (NO) Norway Feb Trend Unemployment Rate: 3.6% v 3.5% prior.

- (MY) Malaysia end-Mar Foreign Reserves: $114.0B v $114.3B prior.

- (ZA) South Africa Feb CPI M/M: 0.7% v 0.6%e; Y/Y: 7.0% v 6.8%e.

- (ZA) South Africa Feb CPI Core M/M: 0.8% v 0.6%e; Y/Y: 5.2% v 5.0%e.

- (IS) Iceland Central Bank (Sedibanki) raised 7-Day Term Deposit Rate by 100bps to 7.50%.

- (EU) Euro Zone Jan Current Account: €17.0B v €13.0B prior.

- (IS) Iceland Feb Wage Index M/M: 0.4% v 0.2% prior; Y/Y: 8.7% v 8.6% prior.

- (PL) Poland Mar Consumer Confidence: -35.6 v -34.6e.

- (UK) Jan ONS House Price Index Y/Y: 6.3% v 6.5%e.

- (IT) Italy Jan Current Account: -€B5.2 v +€2.6B prior.

- (GR) Greece Jan Current Account: -€0.1B v -€2.6B prior.

- (PT) Portugal Jan Current Account: +€0.3B v -€0.3B prior.

Fixed income issuance

- (DK) Denmark sold total DKK640M in 2033 and 2034 DGB Bonds.

- (ZA) South Africa sold total ZAR3.9B vs. ZAR3.9B indicated in 2031, 2032 and 2035 bonds.

Looking ahead

- (IL) Israel Feb Leading 'S' Indicator M/M: No est v 0.1% prior.

- (CO) Colombia Feb Retail Confidence: No est v 29.7 prior; Industrial Confidence: No est v 3.6 prior.

- 06:00 (BE) Belgium Mar Consumer Confidence: No est v -8 prior.

- 06:00 (EU) Daily Euribor Fixing.

- 06:00 (EU) ECB, BOE and SNB hold weekly 7-day USD Liquidity Tender.

- 06:00 (SE) Sweden to sell Bills.

- 06:25 (EU) Daily ECB Liquidity Stats.

- 06:30 (DE) Germany to sell €5.0B in 2.30% Feb 2033 Bunds.

- 07:00 (US) MBA Mortgage Applications w/e Mar 17th: No est v 6.5% prior.

- 07:00 (UK) Mar CBI Industrial Trends Total Orders: -15e v -16 prior; Selling Prices: 37e v 40 prior.

- 07:00 (IE) Ireland Feb PPI M/M: No est v 1.3% prior; Y/Y: No est v 3.7% prior.

- 07:00 (IL) Israel Feb Trade Balance: No est v -$3.1B prior.

- 07:00 (CZ) Czech Republic to sell Bonds.

- 07:00 (RU) Russia OFZ Bond auction (if any).

- 07:30 (FI) ECB's Rehn (Finland).

- 07:30 (UK) DMO to sell £3.5B in 4.125% Jan 2027 Gilts.

- 07:55 (US) Daily Libor Fixing.

- 08:00 (MX) Mexico Q4 Aggregate Supply and Demand: 4.3%e v 6.4% prior.

- 08:00 (MX) Mexico Jan Gold Production: No est v 7.1K Kg prior; Silver Production: No est v 329.2K Kg prior; Copper Production: No est v 42.2K tons prior.

- 08:00 (NL) ECB's Wunsch (Netherlands).

- 08:00 (UK) Weekly PM Question time in House.

- 08:10 (SE) Sweden Central Bank (Riksbank) Gov Thedeen.

- 09:00 (PL) Poland Feb M3 Money Supply M/M: 0.9%e v 0.2% prior; Y/Y: 6.5%e v 6.9% prior.

- 09:00 (UK) Daily Baltic Dry Bulk Index.

- 09:45 (IT) ECB's Panetta (Italy).

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (RU) Russia Q1 Consumer Confidence: No est v -23 prior.

- 12:00 (RU) Russia Feb PPI M/M: No est v -0.9% prior; Y/Y: No est v -4.6% prior.

- 12:45 (DE) ECB's Nagel (Germany).

- 13:30 (CA) Bank of Canada (BOC) Mar Summary of Deliberations.

- 14:00 (US) FOMC Interest Rate Decision: Expected to raise Target Range by 25bps to 4.75-5.00%.

DOT Plots

Comparison of statement

- 14:30 (US) Fed Chair Powell post rate decision press conference.

- 15:00 (AR) Argentina Q4 GDP Q/Q: No est v 1.7% prior; Y/Y: 1.7%e v 5.9% prior.

- 15:00 (AR) Argentina Q4 Unemployment Rate: No est v 7.1% prior.

- 17:00 (NZ) New Zealand Feb Heavy Truckometer M/M: No est v 0.8% prior.

- 17:30 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to leave Selic Target Rate unchanged at 13.75%.

- 20:00 (AU) Australia to sell A$2.5B in bonds.

- 23:00 (TH) Thailand Central bank to sell THB25B in 2024 Bonds.